Global: Financial crisis could cut official aid by 30%

NEW YORK , 6 November 2008 (IRIN) - The financial crisis is expected to have a severe impact on humanitarian funding, with some analysts projecting cuts in official development assistance (ODA) of up to a third or more.

"We are deeply concerned about the prospects for ODA," Brett House, UN Development Programme (UNDP) senior economist, told IRIN. "In past periods of market turmoil and recession, global ODA has on some occasions fallen up to 40 percent from established trends."

Official government aid is the main funding source for most UN agencies, although less so for NGOs. For example, ODA accounted for more than 70 percent of the UN Children's Fund (UNICEF) budget of US$3 billion in 2007, while Concern Worldwide received 48 percent of its 2007 budget of $116.3 million Euros ($150 million) from governments and co-funders, 48 percent from general donations and the private sector, and the rest in kind.

Humanitarian experts are looking at patterns of past recessions and economic slowdowns for guidance, and projections vary depending on agencies and their sources of funds.

As far as ODA is concerned, not everyone foresees a major decline. For instance, US funding rose in both 2001 and 2002, despite the eight-month recession in 2001 linked to the dot-com bust. "We never saw the effect of it in ODA budgets," Antonie de Jong, UN Development Fund for Women (UNIFEM) outreach and business development adviser, told IRIN. But, he added: "Of course we are concerned."

"After each previous financial crisis in a donor country since 1970, the country's aid has declined," said David Roodman, research fellow at the Center for Global Development (CGD), a Washington think-tank.

Roodman noted that Finland's aid fell 62 percent during its economic crisis in the early 1990s, while Japan's declined 44 percent during its decade-long slump.

"It's of course very early, we don't know how bad it's going to be," he said. "I would say the crisis in Japan was extremely serious, as was the one in Finland. They had milder problems in Sweden and Norway in the early 1990s. My guess is that donors are going to be in between those two extremes."

No UN agency has yet reported a slowdown in contributions, and no clear idea has yet been formed on the potential impact. "I wish I had more answers. Everyone would like more answers on this one, frankly," Stephanie Bunker, spokeswoman for the UN Office for the Coordination of Humanitarian Affairs (OCHA), told IRIN.

"It's a vital question and we're obviously concerned," she said. "We're assuming it may have some impact, but it's not yet clear what. That's the $64,000 question."

Global ODA from all donors for 2007 was $117.576 billion according to the Organization for Economic Cooperation and Development. The European Union and its 27 member states are by far the largest ODA provider, supplying half the global amount.

Because of a downward trend, their ODA fell to 46.1 billion Euros ($59.4 billion) or 0.38 percent of gross national income (GNI) in 2007, down from 47.7 billion Euros ($61.4 billion), or 0.41 percent of GNI, in 2006.

Home not abroad

"Up until a couple of months ago the general thought process had been that in fact it would pick up again for this year and next. That seems to be much more in doubt now," European Commission (EC) humanitarian aid and development spokesman John Clancy told IRIN.

"The concern that we hold is that not only the EU states but also the broader donor community become very inward-looking, in the sense of their home policy, to an extent understandably, because they now have to deal with the economic impact on the ground," he said.

Still, some governments are pledging to stand by their commitments. Norway's overall humanitarian assistance was 2.459 billion krone ($425 million) in 2007, with 2.588 billion ($447 million) in 2008, and 2.445 billion ($422 million) in 2009 (lower because of a technical budgetary change).

"The total Norwegian development aid budget, including humanitarian assistance, will in 2009 reach 1 percent of GNI for the first time," Sigvald Hauge, the Foreign Ministry's senior adviser for humanitarian affairs, told IRIN.

"There is broad consensus in the Norwegian population and across party lines that Norway shall be a substantial and predictable humanitarian donor. Unless Parliament decides otherwise when the Government's budget comes to a vote in December, we do not foresee that cutbacks will become necessary."

Denmark in 2008 increased its contributions and reserve funding by some 7 percent over 2007. "We do not expect the global economic crisis to influence humanitarian aid in the future," Foreign Ministry humanitarian assistance officer Ttrine Barnøe told IRIN.

As for the US, which with $21.752 billion in ODA in 2007 is the second-largest contributor, President George W Bush said in September: "America is committed - and America must stay committed - to international development for reasons that remain true regardless of the ebb and flow of the markets."

During the presidential campaign, Barack Obama said he would double US annual foreign assistance from $25 billion in 2008 to $50 billion but his vice-presidential candidate Joe Biden said in October this commitment would probably be "slowed down" due to the crisis.

Roodman of the CGD, however, said even a slowing down could be a euphemism. "We'll be lucky just to keep the foreign aid flat."